Canadian exports have been hard hit in recent years. The U.S. recession and the strong loonie made it much tougher for our SMEs to carve out a place on international markets.
In light of the situation, experts encouraged exporters to diversify their markets and to develop emerging markets, where economic growth was still robust. However, many hesitated to venture into these more far flung, hard to reach places. Since it takes time and a long-term commitment to develop international markets, those who took the leap had to wait a while before seeing significant results. During this time, the export situation in Canada continued to deteriorate and the recovery was slow to take root.
Still, three recently published reports signal that the efforts made by Canadian businesses to diversify their export base are starting to pay off and that Canadian SMEs are increasingly open to internationalization.
First, on May 11 Statistics Canada released the country’s international merchandise trade figures for March. We find that Canada’s trade surplus increased from $356 million in February to $627 million in March, fuelled by quicker growth in exports than imports. These are extremely encouraging figures given Canada’s huge trade deficit in 2009 and 2010. Another noteworthy observation concerns U.S.-bound exports, which only rose 12.3% between March 2010 and March 2011, compared to 21.6% for all other markets. In March of this year, the U.S. accounted for just 72.6% of Canadian merchandise exports, versus 81.8% in 2005.
Separately, a day earlier EDC unveiled its spring export forecast. The inspired title of the report, The Diversification Dividend alludes to the fact that Canada’s rebound in exports is largely due to a sustained new market development effort that is starting to pay off. According to the report, from 2001 to 2008, although emerging markets accounted for just a small segment, their annual sales rose more than 12%, versus just over 1% in traditional markets. EDC also says that if this trend continues, emerging markets will account for 20% of Canadian exports in 2016 and almost 30% by 2020. If these forecasts are correct, in the next two years, Canadian export growth will be fuelled by shipments to emerging markets.
Finally, a study conducted by Angus Reid for UPS Canada reveals that 73% of the 546 SMEs surveyed feel that Canadian businesses should disregard the current strength of the loonie and put more resources into international trade and almost two thirds said they were worried about the country’s ongoing trade deficit. A fair number suggest reducing trade barriers with other countries to encourage international trade. These results are quite different from those obtained in a similar survey conducted by Léger Marketing last fall, also for UPS Canada, in which Canadian SMEs were skeptical about international trade, market opening and opportunities on emerging markets.
In conclusion, it’s encouraging to see that exports are once again playing an important role in the country’s economic growth, that Canadian exporters are much less dependent on the U.S. market and that SMEs are finally planning to take advantage of this turnaround. The next few years should be interesting indeed.
Bruno Séguin
While EDC is forecasting the growth of the importance of emerging markets as destination for Canadian exports, DFAIT expects for its part in its document “The State of Trade 2011″ that in 2040, the U.S. will still purchase 75% of Canadian goods exported, which would make it by far the largest export market of Canada. This prediction is based on the geographical proximity and the large size of the U.S. market which will make it the preferred market for Canadian exporters for many years to come.
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